Liberty House Group Pte Ltd vs Dinkar T. Venkatasubramanian

Comp. App. (AT) (Ins) No. 637 of 2019 & I.A. No. 1927, 3057 of 2019 & 583 of 2020 IN THE MATTER OF: Liberty House Group Pte Ltd. ...Appellant

Versus

Dinkar T. Venkatasubramanian ...Respondent Present: For Appellant : Sr. Adv. Mr. Virender Ganda, Mr. Arvind Kumar Gupta, Ms. Henna George, Ms. Ashmeet Arora, Ms. Tanya Hasija, Mr. Ayandeb Mitra, Advocates For Respondent : Mr. Sumant Batra, Mr. Ruchi Goyal, Adv. for R1 Mr. Sandeep Bajaj, Mr. Vipul Jai, Mr. Mayank, Adv. for R1 and 2.

JUDGMENT

Per: Justice Rakesh Kumar Jain:

This appeal is filed by Liberty House Group Pte Ltd. (in short 'LHG')

against the order dated 15.03.2019, passed by the Adjudicating Authority

(National Company Law Tribunal, Chandigarh Bench, Chandigarh) by which

an application filed by State Bank of India, one of the Financial Creditors,

bearing CA Nos. 592 of 2018 has been allowed and as a consequence thereof,

application filed by the Resolution Professional (in short 'RP') bearing CA No.

364 of 2018 for approval of the resolution plan of LHG has been withdrawn.

2. As a matter of fact, the Appellant is not aggrieved against the

withdrawal of the resolution plan submitted by it rather it is aggrieved against

certain observations made by the Adjudicating Authority in the course of

decision taken on the application bearing CA No. 592 of 2018 which are taken

as adverse to its interest.

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3. The brief facts of this case are that State Bank of India filed an

application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (in

short 'Code') bearing CP(IB) No. 116/Chd/Hry/2017 against Castex

Technologies Limited (Corporate Debtor) (in short 'CTL') which was admitted

on 20.12.2017 declaring moratorium. IRP was appointed on 22.12.2017. The

CoC in the meeting held on 01.02.2018, approved the process note containing

terms and conditions for consideration and selection of the resolution plans

and the same was shared with potential resolution applicants subject to their

furnishing the non-disclosure undertakings and eligibility declaration in

terms of Section 29A of the Code. The RP invited Expression of Interest (in

short 'EOI'). 17 potential resolution applicants including 5 strategic and 12

financial investors furnished their EOI, however, 5 EOI were received after the

last date of the submission of EOI. Amongst others, LHG submitted its EOI

on 27.01.2018. SBI Capital Markets Ltd. was appointed as process advisors

to assist the resolution professional in evaluating the resolution plans and in

the same meeting, the criteria for evaluation of the resolution plans was also

approved by the CoC. The RP also created a virtual data room (VDR) and

provided access to the resolution applicants with effect from 20.02.2018

onwards but out of 17 potential resolution applicants, only seven submitted

non-disclosure undertaking in agreeable form and they were all provided with

the access to the VDR. The process memorandum was also modified because

of the amendment in Regulation 35 and inserted in Section 36A of the

Regulations w.e.f. 06.02.2018, hence, the process memorandum prepared

earlier was modified to include the evaluation matrix.

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4. The RP issued process memorandum dated 30.03.2018 detailing each

step of the process to be undertaken during the CIRP for resolution of CTL.

The RP received two potential resolution applicants, namely, Deccan Value

Investors L.P. (DVI) and Liberty House Group PTE Limited (LHG) and were

placed before the CoC in its meeting held on 16.04.2018. In the meeting held

on 05.05.2018, the resolution plans submitted by these two resolution

applicants were found deficient. However, in terms of Clause 11.1 of the

process memorandum, LSG submitted a Bid Bond Guarantee (BBG) for an

amount of Rs. 40 Crores dated 10.05.2018 issued by Barclays Bank PLC,

Nehru Place, New Delhi being No. BARCBG2018145. In the meeting held on

18.05.2018, the resolution plan submitted by DVI was not found

commercially comparable with the higher bid of LHG and no revised offer was

provided by it after 03.05.2018. Therefore, CoC classified LHG as the preferred

bidder and it was granted time till 25.05.2018 for submission of the resolution

plan after addressing the issue raised by the CoC. On the basis of the decision

taken by the CoC in its meeting held on 18.05.2018, it was resolved to seek

extension of 90 days more in terms of Section 12(2) and (3) of the Code and

for that purpose CA No. 221 of 2018 was filed. The said application was

allowed on 13.06.2018 and the period for completion of insolvency resolution

process was extended by 90 days which expired on 13.09.2018. After

negotiation with the member of the CoC, LSG submitted resolution plan dated

21.08.2018 with addendums dated 23.08.2018 and 28.08.2018 in

furtherance of its EOI dated 27.01.2018 which was approved by the CoC of

CTL with 98.80% of the voting share on 30.08.2018. The RP issued a letter of

intent (LOI) to LSG in accordance with the provision of Code and in terms of

Comp. App. (AT) (Ins) No. 637 of 2019 4

process memorandum which was unconditionally and duly accepted and

executed by LHG on 03.09.2018. Clause (ii) of the LOI prescribed that "you

shall, within a period of 10 (ten) business days from the date of issuance of

the letter of intent, submit a performance guarantee as defined and in the

manner provided in Clause 14.1 of the process memorandum." Clause 14.1,

14.2 and 14.3 of the process memorandum is reproduced as under:-

"14.1 With 10 (ten) business days of the date of issuance of a Letter of Intent, the Successful Applicant shall provide a performance guarantee of INR 100,00,00,000/- (Indian Rupees One Hundred Crore only) in favour of State Bank of India A/c Castex Technologies Limited ("Performance Guarantee"). The Performance Guarantee shall be valid for an initial period of 9 (nine) months from the date of signing of the Letter of Intent ("Performance Guarantee Validity Period") and shall be extended /renewed by the Successful Applicant for such period until 100% (one hundred percent) of the Applicant Contribution is made by the Successful Applicant in accordance with the Plan. The Performance Guarantee shall have a claim period of 30 (thirty) days after the Performance Guarantee Validity Period. State Bank of India will hold the Performance Guarantee in trust on behalf of the Committee of Creditors.

14.2 The Committee of Creditors shall have the right to invoke the Performance Guarantee by issuance of a written demand in the prescribed format to invoke Performance Guarantee. The Performance Guarantee can be invoked at any time, if (a) any of the conditions under the Letter of Intent or Resolution Plan are breached; or (b) non-receipt of required approvals within the timelines specified in the Resolution Plan or if the Resolution Plan is not effective due to any approval required by the Successful Applicant to give effect to the Resolution Plan. The Performance Guarantee shall be returned upon infusion of Applicant Contribution by the Successful Applicant. 14.3 Non submission of the Performance Guarantee by the Successful Applicant, as per the provisions of the clause 14.1 will lead to rendering of Resolution Plan by such Successful Applicant as non-responsive, and the Resolution Professional shall have the right to reject the Resolution Plan and invoke the BBG"

5. The LHG was required to provide a performance guarantee of Rs. 100

Crores in favour of State Bank of India for and on behalf of the CoC, within

Comp. App. (AT) (Ins) No. 637 of 2019 5

10 business days of the date of issuance of a LOI. The condition for

submission of 100 Crore as performance guarantee was incorporated in the

process memorandum to attract genuine and serious resolution applicants,

who are capable of performing and resolving the CTL by way of resolution plan

and to keep away non-serious and vexatious resolution applicants. Since, the

time is the essence of the Code, this stipulation was for the genuine and

serious resolution applicants so that CTL is not dragged into liquidation.

Moreover, the process memorandum was a document formulated and

approved by the CoC in terms of 25(2)(h) of the Code, which lay down the

criteria and provide for the method for preparation and submission of

resolution plan and other conditions required to be followed by the resolution

applicants for submission of resolution plan.

6. Be that as it may, the RP filed CA No. 364 of 2018 under Section 30(6)

r/w Section 31 and 60(5) of the Code r/w Regulation 39(4) of the Insolvency

and Bankruptcy Board of India (Insolvency Resolution Process for Corporate

Persons) Regulations, 2016 (in short 'Regulations') to submit the resolution

plan of the LSG, approved by the CoC, for its approval by the Adjudicating

Authority. However, before resolution plan could have been approved by the

Adjudicating Authority, State Bank of India filed CA No. 592 of 2018 on behalf

of the CoC in respect of the Corporate Debtor under Section 30 r/w Section

31 and 60(5) of the Code for withdrawal of CA No. 364 of 2018 and to exclude

the time period spent, in negotiating with LHG and in litigation w.e.f.

18.05.2018 till passing of the final order on that application. This application

was filed in view of the decision taken by the CoC in 18th meeting to reject the

resolution plan of the LHG and to invoke BBG submitted by the LHG in terms

Comp. App. (AT) (Ins) No. 637 of 2019 6

of Clause 14.3 of the process memorandum. It is pertinent to mention that

even the BBG submitted by LHG was invoked on 21.11.2018 by the SBI acting

for itself and on behalf of the CoC. The decision to withdraw CA No. 364 of

2018 was taken in view of the fact that LSG was unable to comply with the

basic requirement of furnishing performance guarantee to the tune of Rs. 100

Crores which casted a serious doubt on the ability of LHG to implement the

plan, which contemplates total payment of Rs. 2505 Crores. LHG filed a cviil

suit bearing CS (Comm) No. 1246 of 2018 before the Hon'ble Delhi High court

for interim injunction restraining encashment of BBG but vide order dated

22.02.2019, the Hon'ble Single Judge of Delhi High Court held that the High

Court being a civil court does not have the jurisdiction over the subject matter

of the suit. After discussing the conduct of the Appellant in regard to its non-

compliance of the essential terms and conditions of LOI and the process

memorandum, the Adjudicating Authority made an observation that the LHG

is at default because as per the process memorandum and LOI, duly signed

by the LHG, furnishing of performance guarantee was an essential term.

While reaching to its conclusion, for passing of an order of withdrawal of the

application CA No. 364 of 2018, the Adjudicating Authority made observations

in respect of the conduct of the Appellant and passed the following order:-

"57. In view of the above, we allow the application CA No. 592 of 2018 filed by State Bank of India on behalf of the Financial Creditor and consequently CA No. 364 of 2018 filed by the RP for approval of the plan is permitted to be withdrawn. CA No. 364 of 2018 is therefore, disposed of as withdrawn.

58. We further direct as under:-

i. the period from 18.05.2018 to the date of receipt of the certified copy of this order shall be excluded for counting 270 days permitted for completion of the insolvency resolution process;

Comp. App. (AT) (Ins) No. 637 of 2019 7

ii. in case the CoC decides to so proceed for calling fresh EOI, the RP/CoC shall issue the specific notice inviting EOI to DVI apart from making publication of the notice in the normal permissible mode for such purpose; and iii. we impose the cost of Rs. 10 lacs upon the respondent-LHG for not implementing the resolution plan approved by the CoC to be deposited with the Prime Minister Relief Fund within a period of one month from the date of receipt of the copy of this order and the financial creditors shall be at liberty to file proceedings for claiming damages and / or costs before the appropriate forum."

7. It is pertinent to mention that it has been brought to our notice that in

pursuance of exclusion of time and direction for initiation of fresh process,

the resolution plan submitted by DVI dated 06.01.2020 r/w Addendums

dated 07.02.2020, 18.02.2020 and 09.03.2020 was approved by the CoC on

16.03.2020 and thereafter, the same has also been approved by the

Adjudicating Authority on 15.12.2020 under Section 30(6)r/w Section 31 of

the code and the DVI resolution plan has since been fully implemented on

21.01.2022.

8. As we have earlier observed that this appeal by LHG is not on the merit

of the decision taken by the Adjudicating Authority allowing the application

filed by SBI on behalf of other creditors bearing I.A. No. 592 of 2018

consequent to which CA No. 364 of 2018 filed by the RP for approval of the

resolution plan submitted by LHG was withdrawn rather this appeal has been

filed by LHG for expunction of certain remarks/observations made by the

Adjudicating Authority in the course of passing the impugned order.

9. Counsel for the Appellant has pointed the said observations which are

contained in Para 17, 36, 42, 55, 58(iii) of the short synopsis, which are

reproduced as under:-

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"17. It is stated that the resolution plan submitted by LHG was even accepted in this case of M/s Amtek Auto Limited and others against which the admission order was passed by this Tribunal under Section 7 of the Code in a petition filed by the Corporation Bank bearing (IB) No.42/Chd/Hry/2017. Amtek Auto Limited is stated to be the holding company of the corporate debtor, namely, Castex Technologies Limited, LHG has further defaulted in implementing the resolution plan sanctioned by the Kolkata Bench in the case of Adhunik Metaliks Límited.

36. Having given our thoughtful consideration to the submissions made by learned senior counsel for the CoC, the respondent and also the learned counsel for the Resolution Professional, we are of the view that there is a clear default by the LHG in not complying with the essential terms and conditions of the Lol and the process of memorandum.

42. It is not even the case of the respondent that any time upto the filing of the application, the performance guarantee as required by terms of Lol was ever furnished. We, therefore, conclude that there is a clear default by the LHG in making compliance of the terms and conditions of the Lol duly signed by the respondent LHG.

55. The other question, which we deem important to consider is whether the respondent-LHG should be burdened with costs for the default. We are of the opinion that exemplary costs should be imposed upon the respondent-LHG for making mockery of the entire system of CIR Process, for which the strict timelines are provided by the Code in completion of the whole process, LHG seems to have submitted the resolution plan with the highest bid has committed the default in complying with the essential terms of the plan and Lol and has come up with some excuse or the other to avoid it.

58(iii). we impose the cost of Rs.10 Lacs（Rupees ten lacs only) upon the respondent-LHG for not implementing the resolution plan approved by the CoC to be deposited with the Prime Minister Relief Fund within a period of one month from the date of receipt of the copy of this order and the financial creditors shall be liberty to file proceedings for claiming damages and / or costs before the appropriate forum"

10. Counsel for the Appellant has submitted that the Appellant is a

prominent international company which specializes in reviving sick and

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insolvent manufacturing companies. It is submitted that it has obtained three

companies through CIRP process being Adhunik Metalik Ltd., Zion Steel Ltd.

and SBQ Steels Ltd.. It is submitted that the Appellant is only seeking

expunction of certain observations in the impugned order and willing to pay

Rs. 10 lakhs (Cost) as a goodwill gesture and in this regard submitted that

the order may be modified to the extent that instead of treating it be an

amount of cost, it may be treated a payment made by the Appellant

voluntarily. It is submitted that LOI contained the requirement of Bank

Guarantee and not the performance guarantee whereas the RP has sought

bank guarantee through its email dated 10.09.2018 and while the dispute

between the RP and the Appellant regarding performance bank guarantee and

the negotiations were going on, the RP filed CA No. 431 of 2018 seeking

appropriate directions to LHG but it was withdrawn on 14.12.2018. It is

further submitted that the order of withdrawal of the resolution plan was not

opposed by the Appellant, therefore, there was no occasion to pass any

strictures as there was no lis before the Adjudicating Authority and there was

any dispute regarding withdrawal of the resolution plan. The Appellant has

relied upon an order passed by this Tribunal in the case of Liberty House

Group Pte. Ltd. Vs. ARGL Ltd. CA (AT) (Ins) No. 8 of 2019 to contend that the

same order may be passed in the present appeal as well. It is submitted that

in similar circumstances, the resolution plan of ARGL Ltd. was also

withdrawn by the RP which was allowed by the Adjudicating Authority on

05.12.2018 and adverse observations contained therein were set aside by this

Tribunal vide order dated 08.03.2019 in the case of Liberty House Group Pte.

Ltd. (Supra). In respect of the observations made in Para 17 of the impugned

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order regarding the failure of the Appellant in implementing the resolution

plan sanctioned by the Kolkata Bench in the case of Adhunik Metaliks Ltd.,

it is submitted that there were certain disputes regarding interpretation and

implementation of the resolution plan of the Adhunik Metaliks Ltd. between

the Appellant and CoC. This Tribunal, vide order dated 15.03.2019 in CA (AT)

(Ins) No. 53 of 2019, permitted the Appellant another 30 days to make the

payment in terms of the resolution plan which was made by the Appellant

and is recorded in the order dated 07.02.2020 passed by this Tribunal in CA

(AT) (Ins) No. 724-725 of 2019. As regards observations made in Para 36, 42,

55 and 58(iii), it is submitted that there has been no default on the part of the

Appellant in not complying with the essential terms and conditions of LOI and

process memorandum because the CoC did not provide for the performance

guarantee and in the process document and there was no specific format for

BBG. It is further submitted that there was no requirement for the resolution

applicants to submit performance guarantee in the form of bank guarantee

which was introduced by the RP after the issuance of LOI and approval of the

resolution plan by the CoC. The observation made in Para 58(iii) is pertaining

to imposition of cost of Rs. 10 lacs for not implementing the resolution plan

approved by the CoC and a direction has been issued to the Appellant to

deposit the same in the Prime Minister Relief Fund about which the Appellant

has already submitted that the said amount may not be imposed as a cost

but the Appellant would voluntarily deposit the same.

11. In reply, Counsel for the Respondent No. 1 has submitted that the

observations made in Para 17 in the aforesaid paras, highlighted by the

Appellant, has been made after due consideration of the facts and

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circumstances on record and on the basis of findings of facts recorded by the

Hon'ble Delhi High Court in CS (COMM) 1246 of 2018 filed by LHG seeking

permanent injunction restraining SBI from invoking the BBG, Para 42,43,44

& 45 read as under:-

"42. Even otherwise, de hors the legalese, what emerges on going through all the documents is that the plaintiff, after submitting the resolution plans and after the same were approved by the CoC, has had second thought and/or was not in a position to furnish PBG and started making counteroffer, of conversion of BBG into PBG and opening of an Escrow Account for the balance amount of the PBG and which was not acceptable to the RP/CoC who, after giving sufficient latitude to the plaintiff have invoked the BGs.

43. It cannot also be lost sight of that in the whole process, considerable time, out of the time bound schedule in terms of the Code for the resolution process, has been wasted and wastage of which time may ultimately result in the possibility of Castex and ARGL Limited being restructured ceasing to exist and being inevitably required to be liquidated, all at the cost of the creditors thereof and wastage of the stressed assets of the said two companies. The loss caused by such conduct of the plaintiff is thus mammoth, having adverse consequences on all the creditors and shareholders of the said two companies and also on the economy of the country and to remedy which, the code was enacted. The NCLT is best equipped to also deal with apportionment of the amount of the BBGs in proper account.

44. The present case thus also falls in the category of cases envisaged in SAW Pipes Ltd. supra i.e. where loss caused on account of delays in construction of say, a public road, though does not cause loss to any individual or person or company in particular but causes loss to the residents of the country and which is unmeasurable and in which regard a pre-estimate is permitted to be forfeited without proof of any loss. The loss likely to be caused by the conduct of the plaintiff similarly, is to the country as a whole and thus the amount of the BBGs which the plaintiff was required to furnish to ensure that the plaintiff, after furnishing resolution plan does not withdraw, as the plaintiff has done, though not expressly but by conduct, qualifies as a genuine pre-estimate of the loss.

45. On merits also thus, I do not find the plaintiff entitled to a restraint against encashment/payment under the BG."

Comp. App. (AT) (Ins) No. 637 of 2019 12

12. The Regular First Appeal against this order bearing RFA (OS)

(COMM) No. 12 of 2019 filed by LHG, the interim order has been declined but

the said RFA is pending in the Hon'ble Delhi High court of Delhi. It is

submitted that since the observations have been made in the impugned order,

taking into consideration the findings recorded by the Delhi High Court, the

said observations may not be set aside in this appeal. It is further submitted

that no specific format was provided in respect of PBG is after thought. LHG

vide email dated 15.09.2018 requested the RP to complete the obligation

under Clause 14 of the process memorandum by converting the BBG of Rs.

40 Crores to performance bank guarantee and by creation an overseas escrow

account for the remaining 60 Crores but vide email dated 18.09.2023 the RP

informed LHG that this request is in violation of the LOI issued on behalf of

the CoC. The RP convened 15th CoC meeting to discuss the issue of violation

of clause 14 of the process memorandum by LHG where the representative of

LHG took the same stand of converting Rs. 40 Crores of BBG as part of PBG

and remaining Rs. 60 Crores to be deposited in overseas escrow account

which can be used to pay the upfront portion and assigned the reason for it

that the LHG does not want to keep the money locked as margin money for

issuance of PBG and will be happy to put in the money after the plan is

approved by the Adjudicating Authority. He also stated that due to the

uncertainties in the progress of the legal proceedings and predictable

timelines, he is unable to submit the PBG in the manner prescribed in the

LOI but the CoC made it very clear that no deviation from the terms agreed is

possible. It is submitted that LHG vide email dated 24.09.2018 again

requested the RP to agree to the proposed arrangement but the member of

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CoC after detailed discussion during the 18th meeting held on 19.11.2018

decided to invoke the BBG submitted by LHG and further withdraw the

application filed before the Adjudicating Authority by the RP for approval of

the resolution plan. It is also argued that at no point of time the LHG raised

any concern in regard to the ambiguity in the terms/ format of PBG rather

stand taken by the LHG was that due to uncertainties in the progress of the

legal proceedings and predictable timelines, the LHG is unable to submit the

PBG in the manner prescribed in the LOI and before the Adjudicating

Authority the LHG pleaded in regard to the ambiguity in the format of PBG as

the reason for non-submission of PBG and therefore, it is all an after though

submission made by the Appellant. It is next argued that the order dated

08.03.2019 passed by this Tribunal is not applicable to the facts of this case

because the order passed in the case of ARGL Ltd. was on its own facts and

circumstances and no reason has been recorded for passing of the order,

therefore, it does not laydown any ratio which is to be followed and whereas

the present case is on its own facts in which the observations came to be

recorded which is relevant and germane to the controversy because in the

absence of these observations that the Appellant had been remis in

submitting the performance guarantee, the application for withdrawal of the

application for the approval of the resolution plan could not have been

allowed.

13. We have heard Counsel for the parties and perused the record with their

able assistance.

14. We have given the facts in detail which would itself indicate the process

of CIRP at various levels in as much as opportunity granted to the Appellant

Comp. App. (AT) (Ins) No. 637 of 2019 14

to comply with the terms and conditions laid down in LOI and process

memorandum but the Appellant failed to comply with the same and could not

even gave the performance guarantee of Rs. 100 Crores as against the

resolution plan of Rs. 2505 Crore. The Hon'ble Delhi High Court came down

heavily upon the act and conduct of the Appellant in its order which has been

reproduced hereinabove which has been one of the factum prevailed upon the

Adjudicating Authority to make the observation about the act and conduct of

the Appellant for non-compliance of the terms and conditions of LOI and

process memorandum and delayed the whole proceedings which has a certain

timelines.

15. In our considered opinion, the observations which are sought to be

expunged or deleted are relevant and germane to the process for taking

decision for allowing the application filed by SBI for withdrawal of the

application filed by the RP for approval of the resolution plan submitted by

the LHG/Appellant in which it did not show any interest as it could not even

deposit a sum of Rs. 100 Crores as the performance guarantee and requested

to treat the BBG of Rs. 40 Crores as part of the performance guarantee of Rs.

100 Crores and asked for rest of the amount of Rs. 60 Crores to deposit in the

overseas escrow account which was not the spirit of LOI and process

memorandum. The reason for not complying with the terms and conditions of

the LOI and process memorandum has also been given by LHG and noticed

in the meetings of the CoC, referred to above. In so far as the decision in the

case of CA (AT) (Ins) No. 08 of 2019 is concerned, the said order does not give

any reason for setting aside the observations as well as cost which was

imposed rather the part of the impugned order about which the LHG was

Comp. App. (AT) (Ins) No. 637 of 2019 15

aggrieved against in the said appeal has also not been noticed, therefore, in

our humble opinion, the said decision is not a precedent for us to follow.

16. Thus, in view of the aforesaid discussion, we find that this appeal is

denuded of any merit which may calls for any interference by this Court much

less for the limited purpose for which it has been filed and hence, the same is

hereby dismissed though without any order as to costs.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

New Delhi

17th November, 2023.

Sheetal

Comp. App. (AT) (Ins) No. 637 of 2019